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CFO & Audit Chair

Leading Through the Unexpected

CFOs prove themselves as strategists and people leaders

  • August 2021

The chief financial officer position was already being recalibrated before COVID-19 struck, however, the global pandemic demonstrated in real time how the CFO’s role goes far beyond the balance sheet. “The past decade has seen the CFO evolve as a strategist, not as just an accountant,” Paul Jacobson, CFO of General Motors Co., says.

While in the heat of the crisis, the CFO was busy ensuring enough liquidity for the business to survive, in the recovery there is even more to manage—navigating the return to work, mitigating continued supply chain disruptions, and an intensified focus on environmental, social and governance (ESG) issues from a variety of stakeholders. We spoke with industrial CFOs to find out how their roles are evolving, what they learned from the pandemic, and what the new definition of the CFO role could look like.

Balancing New Technologies with Human Interaction

During the pandemic, technology enabled many workers to be remote, and most organizations didn’t see a drop in productivity—many were even more effective. “Technology has enabled productivity in a way we never thought possible,” says Andrew Bonfield, CFO of Caterpillar Inc. “It’s surprising how efficient it has been given the magnitude of change we put people through.”

The rise of virtual meetings has eliminated travel issues and, in some cases, forged closer connections. Leaders were able to meet with their global teams much more frequently. “Our CEO met with 1,000 executives at Caterpillar in the first few months of the pandemic through 50-person virtual meetings,” shares Bonfield. “If he was trying to travel to all 160-odd locations to do that, it would have taken him a year’s worth of traveling to meet that many people.” It also helped on the investor front, where moving the typical conference call format to a video call created a more human-centric environment.

In addition, the near-seamless adaptation of technologies helped to change negative perceptions of remote work. “We’re a pretty traditional manufacturing company, and we didn’t have a work-from-home (WFH) policy, which was beginning to be a competitive issue in terms of attracting and retaining talent,” Frank Dellaquila, CFO of Emerson Electric Co., says. “We learned that many critical functions can be done at least partially remotely, and as a result, we have a pilot flexible WFH policy now.”

While many companies are granting workers more flexibility, getting people physically back to the workplace is challenging. Some employees have ongoing health concerns if not everyone in their families have been vaccinated and others have adjusted to a more balanced lifestyle and don’t want to give it up. This leaves C-suite officers across organizations speculating what the culture will look like going forward. “There is not one right answer – for a CFO, I have people who need to be in the office, and I have people who perform functions that never need to come into the office ever again,” Jacobson notes. “How do you create a finance culture across that and a culture of inclusivity?”

Leaders will need to balance the desire for human interaction with utilizing the efficiencies of new technologies to retain and attract workers. “We discovered things we didn’t know we could do, and work is never going to be the same,” notes Olivier Leonetti, CFO of Johnson Controls. “Leadership will never be the same.” Adds Dellaquila, “Nothing focuses the management team like a crisis. There are huge learnings that will benefit us going forward in terms of leadership, priorities and engagement.”

Supply Chains in Flux

Once a global supply chain stops, it takes a while to restart, causing disruption across the board, which occurred throughout the pandemic. The shortage of semiconductor chips coupled with labor shortages in certain regions are systemic shocks that companies must work through. Some industrial companies weathered the disruption well. At Caterpillar, Bonfield notes that they saw the potential for an upturn in 2021 early on, so they made the conscious decision to hold extra components and inventory. This was an immense help in mitigating some of although not all of the supply chain challenges that came with extreme weather conditions in Texas as well as the current chip shortage many companies are facing.

As consumer spending roared back, GM saw a spike in sales and is poised for a record 12 months of performance amid supply chain disruption spurred by the chip shortage. “Consumers didn’t have a medium to spend, like on movies or dining, so people are choosing to buy a new car and buy up for luxury,” shares Jacobson. “We can’t build vehicles fast enough to meet the demand.”

Emerson also had some incremental learnings about their supply chain. “When it gets put under traumatic stress, there are some things you learn and some adjustments that you make,” Dellaquila shares.

However, no company was completely immune to stalls in supply chains, causing many leaders to rethink if single sourcing is enough—especially in areas of geographical or geopolitical instability. “Dual sourcing may cost a bit more, but it’s an insurance policy,” Bonfield notes. Adds Leonetti, “We understand now that single source and single port of manufacturing can be a problem, and we spend much more time on our alternatives now.”

ESG Rising

The investment community has ratcheted up the importance of ESG, and the media are giving it more attention as well. “It’s gone from being a courtesy to an absolutely critical element in valuation,” notes Jacobson. While many industrial companies do want to create more sustainable practices and policies, these shifts will take time and require attention from across the C-suite, not only the CFO. “We cannot just go to alternatives to fossil fuel engines overnight,” Bonfield notes.

It’s also difficult to make such shifts when customer demand is lacking. “In the past, we’ve offered electric excavators, and no one wanted to buy them because the price premium is so high and the pressure to shift to electric equipment in some applications just isn’t there at the moment,” Bonfield shares.

While in earlier years, ESG was mainly focused on the environment, the social and the governance components have exponentially grown in importance over the last year. “Corporate leaders have had to step-up in their communities,” Jacobson says. “If you aren’t doing ESG roadshows, at best you’ll miss out on opportunistic investors. At worst, you’ll be losing [your current] investors.”

The Future of the CFO Role

The CFO’s role has been evolving – even before the pandemic hit. The numbers and controls are now table stakes, and CFOs must be prepared to exhibit and grow their soft skills to ensure they feel the pulse of the business. “You can’t be a purely financial CFO – you need to have the trust of key people throughout the organization,” Dellaquila says. Adds Leonetti: “It’s a people game more than ever before – I spend more time on the team, and I quickly address the players who can’t play the game correctly.”

As the finance function continues to change, the capabilities companies seek in finance leaders also changes. “Today, I look for people who have been through a crisis more than before,” shares Leonetti.

As companies look for future CFO talent, there are some key traits and skills they should have an eye toward:

  • Flexible Thinkers

CFOs who have a lens outside of just the numbers are key to helping companies think through major crises. “My big issue is I have a lot of ‘if you want to be in a senior finance role, you have to be a CPA’ legacy here,” Bonfield shares. “I have to change that.” Jacobson adds that he would like to have more people on the finance team “who can see around corners” and have the skills sets to “assess where the company will go tomorrow with forecasting and scenario planning.”

There is also a need for financial leaders who can voice dissension while ultimately seeking consensus – much like in a boardroom. “We want people who are different, who have a point of view and are not frightened to voice it,” says Leonetti. “But at the end of the day, we make a decision and then need everyone to agree as a group and act on it.”

  • Enhanced ERM/Scenario Planning Skills

While even the most talented economists and futurists didn’t predict a massive global pandemic and economic crisis, COVID-19 underscored the need for financial leaders to test new and potentially even outlandish scenarios. “Risk assessments and risk plans weren’t ready for something like a pandemic and its associated risks,” Bonfield says. “I would like to see us do another contingency plan for the next pandemic, focusing on the long-term structure of the supply chain, how to spread manufacturing capability, and ensure that two or three bottlenecks won’t keep your business down.”

Financial leaders also must be more in tune with risk identification and management so they can be proactive versus reactive. “It’s about deciding how to spend time assessing risk: Do we do a quantitative assessment to see if we can foresee it, or do we just make the best of the situation if it happens again,” Jacobson says.  

  • Stronger Communicators

Stronger communication skills across a variety of stakeholder groups (e.g., investors, suppliers, customers, governments) will be a necessity—not just due to the crisis, but due to larger scale transformations already taking place across companies. “We are spending much more time on communication than ever before,” says Leonetti. “We take much more time communicating than ever before at scale.”

  • Collaboration

CFOs must work across teams within the organization and outside of it. “Collaboration is important, you need to build the relationships across the business, speak the language of the business you’re supporting, and understand your peers’ challenges,” says Jacobson.

Externally, it’s important to leverage those same collaboration skills to build relationships in banking and consulting.

While all these capabilities will be important for CFOs, there is no perfect definition of any role, and one of the most important indicators of CFO aptitude is a continuous learner. “Don’t come in thinking you have all the answers,” says Jacobson. “Go in with an insatiable appetite to listen and learn.”

As finance teams navigate new environments and challenges, their ability to lead in the face of uncertainty will be critical. “It’s like in rowing, where the coxswain plays the key role – nobody knows the person, they’re never on the podium – but that’s the role that we play,” Leonetti explains. “Pacing and guiding much more than ever before.”

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